2007-08-26 10:47:12 · 5 answers · asked by idtwin1997 1 in Business & Finance ➔ Personal Finance
Compound interest is interest that is paid on both the principal and also on any interest from past years. It’s often used when someone reinvests any interest they gained back into the original investment. For example, if I got 15% interest on my $1000 investment, the first year and I reinvested the money back into the original investment, then in the second year, I would get 15% interest on $1000 and the $150 I reinvested. Over time, compound interest will make much more money than simple interest. The formula used to calculate compound interest is:
M = P( 1 + i )n
M is the final amount including the principal.
P is the principal amount.
i is the rate of interest per year.
n is the number of years invested.
Applying the Formula
Let's say that I have $1000.00 to invest for 3 years at rate of 5% compound interest.
M = 1000 (1 + 0.05)3 = $1157.62.
You can see that my $1000.00 is worth $1157.62.
2007-08-26 10:53:04 · answer #1 · answered by magnolia 5 · 0⤊ 0⤋
The one above me that links the moneychimp website is correct, it's actually easy to create an excel spreadsheet that does the calculations for you.
I actually took the time to create one before that calculates interest over a 1 year period that figures compounding interest on a daily, monthly and quarterly basis and lists everything on a summary page to keep things nice and neat and easy to use. I've provided the link to download it below, if anyone uses it then I hope it helps. The moneychimp site and my spreadsheet also give the exact same numbers.
EDIT: Accidentally uploaded the old version, new version has a field for monthly contributions.
2007-08-26 17:00:44 · answer #2 · answered by jsprague78 2 · 0⤊ 0⤋
Calculate the interest on the account, then calculate the interest on the account along with the pervious interest.
The idea is that if you have a bank account or something similar then the money you have will grow. If you have a credit card then the money you owe; your dept, will only continue to increase the longer you have the card and don't pay it all off.
This web site can do it for you: http://www.moneychimp.com/calculator/compound_interest_calculator.htm
2007-08-26 10:53:07 · answer #3 · answered by Dan S 7 · 1⤊ 0⤋
you multiply the rate of interest times the principle.
PRETTY sure.
2007-08-26 10:50:52 · answer #4 · answered by Anonymous · 0⤊ 0⤋
amount times 1.(amount of interst i.e. 1.095)times year !!!
2007-08-30 08:17:50 · answer #5 · answered by mister ed 7 · 0⤊ 0⤋